ANALYSIS: Bank sanctions nibbling away at Iran's resolve

The Iranian economy is starting to feel the sting from a raft of banking sanctions applied by the US to pressure Tehran over its controversial nuclear drive, analysts said.

Washington has blacklisted Iran's three main banks and has also successfully encouraged virtually all major European banks to cut business with the Islamic republic.

"Practically all the major European banks have ceased their cooperation with Iran," said an official from Iran's Export Development Bank, who asked not to be named.

"It is no longer possible to wire money by dollar into Iran and for the payments in euro there are just three European banks. They could stop cooperating with us at any moment," the official said.

British-Asian bank HSBC and the Swiss giants UBS and Credit Suisse were the first to cut business with Iran last year while Deutsche Bank, Commerzbank and BNP Paribas have followed suit this year.

Meanwhile, Washington has blacklisted Iranian banks Melli, Mellat and Saderat, accusing them of acting as a conduit for "terrorist financing" -- something the banks vehemently deny.

The decision has effectively cut the Iranian banks off from the dollar-based financial system and turned them into pariah institutions with whom their foreign counterparts are unwilling to deal.

"There has never been a single example of the involvement of the bank in any illegal activity," Bank Mellat said in an angry statement rejecting the allegations.

But it acknowledged the measures would be felt by ordinary Iranians: "It may inflict harm on the lives of ordinary people using services."

The moves against the Iranian financial system have been in parallel to two sets of UN sanctions against its ballistic missile and nuclear programs. But it is the unilateral US actions that are being felt most keenly in Iran.

In essence, the sanctions aim at cutting off Iran's financial lifeblood.

Foreign banks, who were already refusing to accept letters of credit issued by their Iranian counterparts, are now refusing to carry out even simple operations of money transfers to Iran.

"We wanted to import equipment to construct prefabricated houses but the Australian banks refused to accept letters of credit," said Touraj, an Iranian businessman who preferred not to give his surname.

Even Asian banks from countries that still have close economic links with Iran -- such as South Korea and China -- have been imposing restrictions on business with the Islamic republic.

"The big banks from China, one of Iran's most important partners, are now refusing to deal with Iran as they have important interests in the United States and fear reprisals," said Mehrdad Mahmoudi, a leading currency dealer.

Even banks on the Arabian peninsula -- notably those from the United Arab Emirates -- a US ally and Iran's No. 1 trading partner -- may not be prepared to deal with the Islamic republic over the long haul.

"Iranian banks can still use the services of small Asian banks or the Persian Gulf but that will not last forever," said Bijan Khajepour, director of Atieh Consulting in Tehran.

"Firms are increasingly having to pay in cash or go through a third country to import their goods which will make the finished product even more expensive," he said.

Iran's status as the world's fourth-largest oil exporter and OPEC's second-largest means it cannot allow itself to become detached from the world economy.